Extension for Lowry or Amir - Fun With Cap Space and Finding Loopholes

Hi all. This builds off the great post by Matt52 found here, and my response to it. There's a little bit repeated near the beginning, but I've left it in in case some people didn't read that other thread. I expand on the idea in the second half of this post to apply it to Amir next summer.

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So we all know that Ujiri just loves controllable assets. And hates asset risk, such as letting a player go to unrestricted free agency. So extensions to deals are what he is probably most comfortable with. So let's find a way for him to extend players before they hit free agency.

The premise is based on Collison's case when he extended in OKC.

In 2010-11, Nick Collison was in the last year of his 4 year deal. He was due 6.75 M in that final year. Towards the end of the year, OKC decided they wanted to extend his contract. But they did something funny when they did.

OKC had an abundance of cap space that year, and signed Collison to an extension of 2.76M per year, but with a "signing bonus" of 6.52 million. This would usually be illegal - signing bonuses are limited to a small portion of the overall contract, and don't typically affect the cap situation (they get spread out over the entire contract). The way they avoided those limitations is by renegotiating his current deal (his expiring 6.75M deal) and then signing an extension on the renegotiated deal. Since they had the cap space, they renegotiated his current deal to be for 13.27M instead of 6.75M (you need cap space to do this). That gave him an effective salary of 4.4M per year over the extension, even though their cap hit was 1.6M less.

Applying that case to the Raptors, you can theoretically see potential. It gives the opportunity to offer more for Lowry than his theoretical extension limit would allow, which would solve the UFA risk problem. But for it to work, the Raptors need cap space now. And they are far from that. Currently they have 68M committed. That's about 9.4M over the cap.

Now if they wanted to offer Lowry 34M over 4 years to keep him (which is probably roughly market value), I think to agree to a 3 year extension he'd need more than 8.5M per year to do so. He could probably agree to 30M over 3 years instead of 34 over 4. Maybe that's optimistic, but I'll go with it. So that's 10M per year, which the Raptors cannot offer. They are currently limited to about 7M per year, a 7.5% raise over his current salary.

It is that raise over his current salary that defines what they can offer. 30M over 3 years is a starting salary of 9.3M. That means he would need a salary of 8.65M this year to be eligible for an extension of that value. He currently makes 6.21M - that's a difference of 2.44M. That is the amount of cap space the Raps would need to clear up - see, they don't even need to front load a full signing bonus to be able to keep Lowry, just enough to make re-signing him possible. So, let's take that 2.45M off the total contract, meaning we need only sign him to a 3 year, 27.5 M deal, with a "signing bonus" of 2.5M now. Now if you iterate that a few times, you get an ideal contract extension starting at 8.72M (28.1M over 3 years) with a signing bonus of 1.91 M. That gives 30M to Lowry over 3 years, with the minimum amount of cap space needed this year.

So if the Raps can clear 1.91M in cap space, THIS YEAR, they could do it. So they would need to shed 11.35M in salary before June 30th. Waiving Salmons won't do it as his non-guarantee is for next year, not this year. Would have to be a big deal with a team well under the cap.

Anyway, Lowry seems like a stretch.

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Amir though. Amir we have another year before he expires, so this summer we could do the same trick described above, but it will be easier to get the cap space to do it. And for Amir it wouldn't be a case of trying to get just enough wiggle room to extend him, but to try to put as much of his salary in one year as possible.

This summer, we currently have 74M committed in salaries and cap holds. The cap was projected to 61M at the time of the CBA, although I believe the current projection is closer to 62M. I'll go with 61M to be conservative.

Let's say Salmons, Daye and Hansbrough are released. That clears 6.24M off the cap.

Assuming Kyle Lowry re-signs at 4 years, 34 million (8.5 M per year, backloaded); or more likely 5 years, 44M, that gives him a salary of 7.64M next year. That clears 1.675M off the cap.

Let's say we re-sign Patterson to 5 years at 5M per year. That would start at 4.3M. That brings the cap space up to 5.2M.

5.2M in cap space, 11 players signed (including Stone and Buycks). Assuming we go with Buycks/Stone backup PG, we have Patterson and Hayes as backup bigs, and Fields as a backup wing. So ideally we would want an upgrade at the wing/guard and to lock down Amir as much as possible. Note that the cap room MLE (2.7M) would be available to us to sign a little help as well.

So, in the ideal re-signing Amir world, we don't upgrade at the wing, and stick with Fields and Novak as primary backups on the wing with Stone/Lowry taking some 2 duty if need be.

That means we have 5.2M to renegotiate with. There is a limitation - if a player has their salary renegotiated and extended like this, the maximum salary drop from the renegotiated year to the first year is 40%. So if we want to give Amir 3 years at 10M per year, we do the following.

Renegotiate next year's 7M salary to 12.2M. Give max raises each year. This gives him a contract that runs from 7.3 M in 2015-16 to 8.4M in 2017-18. Total value 23.6M, plus the 5.2M bonus in the renegotiation, gives him the equivalent of a 28.8M extension, while taking about 1.75M off our annual cap hit for his contract. As a note, 5.6M is the amount of cap space needed to give him a full 30M extension. Any other signings (including if we have a 1st rounder we need to sign) will eat into that cap space. Note that the cap will likely be about 1M higher than I've used here, so there is more wiggle room than I am making out.

Utilizing that strategy and the assumptions I stated above for the rest of the roster, our 2015 cap space looks to be about 19.0M and our 2016 cap space is 15.0M (there are big cap holds for JV and Ross this summer).

We could instead look to use that 5M this summer to sign a player, but I would argue the short term benefits of that are far outweighed by the flexibility this course gives moving forward. Especially considering the tendency of MLE range players to far underperform their contracts.

Anyway, I hope this post has given some hope to those who want to keep the team together long term that signing Lowry for an expensive contract in free agency would not kill our flexibility moving forward.

It should also be noted that the Raptors have the bird rights to both Lowry and Johnson, so they can exceed the cap if they choose to, however as you outlined here, the Raptors don't necessarily need to.

It should also be noted that the Raptors have the bird rights to both Lowry and Johnson, so they can exceed the cap if they choose to, however as you outlined here, the Raptors don't necessarily need to.

Yes, they can. And in Lowry's case they would be if he goes to free agency, which he almost certainly will.

The idea in Amir's case is to reduce his cap hit, and unfortunately that can only be done via a) cap space (in the year BEFORE his free agency) as I showed above or b) generosity on Amir's part.

Nice post (and long live Matt52 - hopefully his ban is temporary, as he brings a lot to these boards). I like the Lowry part .. would be interesting to think about what realistic "big deal with another team well under the cap" we could do. Im guessing that means sending draft picks along with someone like LF and/or SN elsewhere. Question then is whether or not its worth the small cap savings for what it costs us to clear the cap space in advance. Likely not if this type of deal is what it takes ... maybe if you could get the job done by moving Novak alone (who we could move without having to send too much alongside him).
As for Amir, yes, it works better for him because of the year ... but I will say that we sure as hell should not be signing him for $10 mm / year. That would be a big mistake. When I think of Lowry for $10mm/year or amir for $10 mm / year .. to me that is a screaming no brainer in favour of lowry. Id resign Amir near his current deal or a slight increase .. thats it. But , your same logic applies in terms of saving cap space, which we should totally try to do if we can ...

Excellent post. I do believe the Lowry situation will be resolved by the trade deadline: either they will have a deal in place or some sort gentlemen's agreeement (it's not illegal if you don't get caught!) or they will trade him. Despite some rumbling in the media about how Toronto is confident they won't lose Lowry in FA, it's a huge risk to let that kind of player walk for nothing.

A sidenote that I think is being left unconsidered by basketball fans is that MLSE just spent $100 million for two soccer players. Now, I am not belittling MLS at all but that's a significant outlay of cash for a team that's probably worth about $100 milion....
For Raptors fans, I think this means we can seriously consider the possibility of MLSE being willing to spend into the tax for players. To my mind, that changes all the calculations drastically.

A sidenote that I think is being left unconsidered by basketball fans is that MLSE just spent $100 million for two soccer players. Now, I am not belittling MLS at all but that's a significant outlay of cash for a team that's probably worth about $100 milion....
For Raptors fans, I think this means we can seriously consider the possibility of MLSE being willing to spend into the tax for players. To my mind, that changes all the calculations drastically.

Good point.

I don't think there was ever any doubt that MLSE was willing to spend. It's just up to Masai to give them a reason to spend.

Excellent post. I do believe the Lowry situation will be resolved by the trade deadline: either they will have a deal in place or some sort gentlemen's agreeement (it's not illegal if you don't get caught!) or they will trade him. Despite some rumbling in the media about how Toronto is confident they won't lose Lowry in FA, it's a huge risk to let that kind of player walk for nothing.

A sidenote that I think is being left unconsidered by basketball fans is that MLSE just spent $100 million for two soccer players. Now, I am not belittling MLS at all but that's a significant outlay of cash for a team that's probably worth about $100 milion....
For Raptors fans, I think this means we can seriously consider the possibility of MLSE being willing to spend into the tax for players. To my mind, that changes all the calculations drastically.

100 mil? Yikes. That makes them the Nets of MLS, I guess. Great point.

Stuff like this really drives home how complex the CBA is and why teams plan three years in advance for free agency, etc. You can't make optimal decisions flying by the seat of your pants in that environment....

It seems like the big downfall to any extension talks with Lowry/Amir, even with a bonus is that they can get more guaranteed years as UFA's. Collison signed a 4 yr extension, but the max length for extensions is now 3 years, much shorter than the 4-5 years those two will plan on getting as an UFA.

As a GM, the bonus+extension as you detailed is a great way to retain as asset while minimizing both the addition of length to the contract and the annual cap hit. Awesome for flexibility. It's limited to a small pool of players, and even a smaller pool of teams, with the bonus potential being eliminated until operating below the cap.

However, with the new repeater penalties for luxury tax paying teams coming into play, I can see this bonus+extension move becoming a popular planning tool for teams in their down-years of salary spending, where those teams opt to go way below the luxury tax line to reset their repeater count.